Luxury car sales hit by companies’, State budget cuts

The luxury segment of the new motor vehicle market recorded a drop in sales last year on lost government orders and inflated vehicle prices, defying the upturn in the overall auto market that got a lift from the recovering economy.

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Sales of luxury brands such as Mercedes, BMW and Jaguar stood at 198 units last year compared to 204 units in 2010, according to data from the Kenya Motor Industry Association (KMI), which showed that the market grew 10 per cent overall to 12,185 units.

The dealers sold 218 units of the luxury cars in 2009 – which shows a further deterioration in the luxury market.

Dealers attribute the continued fall in demand to reduced orders from companies and government, which stopped purchasing luxury cars two years ago, as well as high cost of cars that discouraged wealthy individuals.

“Sales of new luxury cars slowed down due to lack of orders from the Government,” said Sanjiv Shah, the CEO of Marshalls East Africa and formerly the general manager of Mercedes saloon cars at DT Dobie.

He added that the rising cost of cars had also dimmed corporate and individual sales.

Government orders accounted for about 30 per cent of Mercedes sales in recent years—a ratio that analysts say resonated across other luxury brands.

The State has resorted to buying smaller saloon cars such as Volkswagen Passats and announced plans to lease vehicles from private investors—denying luxury car dealers a huge market.

Corporate Kenya, which is also a key buyer of luxury cars, is yet to erase cost-cutting initiatives from their business plans.

The sharp depreciation of the shilling against major currencies has inflated the cost of cars by nearly 30 per cent since January and this has seen buyers put on ice their purchase plans hoping that current market will calm down.

The shilling weakened to a high of Sh107 to the dollar in mid-October from Sh80 in January last year and is now trading at Sh88 – which saw consumers fork out between one million shillings and Sh5 million more.

Range Rover Vogue, for instance, now costs about Sh19.9 million from about Sh16.5 million a year ago while Range Rover Sport costs up to Sh17.3 million excluding VAT taxes, according to Bill Lay, the chief executive of CMC Motors that sells the cars.

The flat demand comes amid stiff competition which pushed the dealers to increase their marketing budgets and introduce new brands, leading to a shift in marketshare structures.

The market leader DT Dobie, which sells Mercedes, Jeep Grand Cherokee, and Chrysler brands, gained marginally with a 55 per cent stake from 54 per cent in 2010.